1. Field of the Invention
Embodiments of the present invention relate to providing retail consumers with a mechanism for hedging against increases in the price of price-volatile commodities, such as gasoline or other goods.
2. Description of Related Art
Large commercial consumers of commodities currently protect themselves from increases in commodity prices by purchasing futures contracts, options, and other financial instruments created for this purpose. For example, large consumers of fuel, such as airlines or trucking companies, may purchase fuel futures to prevent the volatility of fuel prices from having a major impact on the business. The cost of such futures contracts may thereby become a relatively minor overhead expense that that can be easily absorbed in the business's pricing structure, while the contracts minimize the impact of sudden price increases on the profitability of the business.
Small consumers of fuel, however, are practically not able to protect themselves by direct participation in the futures or options markets. Contracts covering very small, retail quantities of fuel are not available. More importantly, the financial calculations, market knowledge and trading experience needed to correctly and efficiently construct a hedge against future price increases would be beyond the capabilities of most consumers, even if retail-sized contracts were available. Small consumers have no alternative but to purchase the fuel or other commodity at current market prices. Reducing consumption becomes the only way consumers can buffer the impact of price increases, but sudden reductions are often not practicable or may have harmful side effects.
It would be desirable, therefore, to provide a tool whereby consumers can better protect themselves from sudden increases in commodity prices, such as gasoline prices.